6. Management Base Enhancement (PDF/1284KB)

Home , Management style

Working for ongoing strengthening and improvement based on “management base enhancement” as a key theme of the medium-term management plan

In recent years, ﬁnancial markets have begun to show Under our previous Medium-Term Management Plan Chapter 4 Management Base Enhancement increased interest in the new ESG management benchmark. “BBBO2017,” we also achieved an enhancement of This reﬂects a shift from an approach that emphasizes management bases by improving corporate governance and short-term growth to one emphasizing medium- to long-term the decision-making process, strengthening the risk and sustainable growth. In parallel with this, the management system, and enhancing “individual capability” overemphasis on economic value is also being replaced by a and “organizational capability.” Our new “Medium-Term Practicing Sustainable shift to a more multifaceted approach that includes social, Management Plan 2020” commits us to expanding the environmental, and other aspects. scope of monitoring so as to strengthen supervisory Against this background, the Sumitomo Corporation functions and enhance Group governance based on internal Business Management Group is working to enhance its management bases in order controls. We will also seek to enhance our human resources to evolve as a corporate group capable of growing strategy and promote sustainable management. sustainably in harmony with society. Aspiring to be a corporate group capable of growing sustainably in harmony with society, we are working to establish more solid management bases to support new value creation. Initiatives to Date to Enhance Corporate Governance

Up to FY2014 FY2015 FY2016 FY2017 FY2018 and after

April 2003: • Limitation of the term of office for Chairman of the Board of Directors and President and Chief Executive Officer (six years, in principle) • Establishment and announcement of Corporate Governance Principles June 2003: Special Feature: Message from • Reduction of number of Directors (24 12) an Independent Director 89 Board of Directors June 2005: Corporate Governance 93 • Shortening of the term of office for Directors (2 years 1 year) Directors Directors, Audit & Supervisory Board Members, and Executive Officers 99 Evaluation of the effectiveness of the Board of Directors (Note: Implemented from fiscal 2015) Internal Control 103 Human Resources Management 109 3 Outside Directors Outside June 2013: Increase to 3 Increase to 4 (including 1 female) Increase to 5 Sustainability Management 111 Directors 2 Directors appointed (including 1 female) (including 1 female) Note: Decrease due to (including 2 females) death, etc. Nomination and April 2007: November 2015: Remuneration Establishment of Advisory Establishment of Nomination and Remuneration Advisory Committee (Note: Majority are Outside Directors, chaired by an Outside Director) Committee Remuneration Committee

Implementation of all principles of Japan’s Other Corporate Governance Code (Full compliance)

87 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Working for ongoing strengthening and improvement based on “management base enhancement” as a key theme of the medium-term management plan

Up to FY2014 FY2015 FY2016 FY2017 FY2018 and after

Implementation of all principles of Japan’s Other Corporate Governance Code (Full compliance)

88 Chapter 4 Management Base Enhancement

Special Feature: Message from an Independent Director Facilitating the sharing of value with shareholders while pursuing medium-to-long term sustainable growth. Nobuyoshi Ehara Sumitomo Corporation Independent Director

In April 2018, Sumitomo Corporation, under the leadership of the new president Masayuki Hyodo, embarked on a new management plan, “Medium-term Management Plan 2020.” One area of major focus is to further enhance governance by increasing monitoring functions of the board of directors. The company also revised its executive remuneration system with the aim to align management incentive with shareholder’s interest. We asked Independent Director Nobuyoshi Ehara, chairman of the Nomination and Remuneration Advisory Committee in charge of the nomination of a new president and the revision of the remuneration structure, to tell us about the decision-making process behind these developments and share his thoughts on how to enhance governance in the future.

89 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

The Nomination of a New President Let me explain the nomination process in further detail. and Chief Executive Officer We first began by discussing qualification required for the next president and agreed on five qualities shown in the According to Sumitomo Corporation’s corporate governance illustration in addition to leader’s ability to navigate the codes, “in principle, the term of the executive office serving company through changes. This was followed by discussions as president shall not exceed six years.” The tenure of former on potential candidates. We then interacted with selected President Kuniharu Nakamura, who took office in 2012, would candidates in various settings. After much deliberation, in have reached six years during fiscal year 2018, so we began November 2017, the committee unanimously decided on Mr. the selection process and eventually named senior managing Hyodo as the new president, a recommendation that was executive officer, Mr. Masayuki Hyodo, as the new president. accepted at the board meeting in December. Nomination and Remuneration Advisory Committee was Mr. Hyodo meets all the qualities required for the established in November 2015 to act as an advisory body for president of Sumitomo Corporation. We rated him especially the board of directors. One of its missions is to enhance highly on crisis resistance and perseverance. Mr. Hyodo objectivity and transparency of the process involved in demonstrated that quality working on a number of projects as nominating a president. The committee is also responsible for well as his strength and leadership during the recent business remuneration matters. Mr. Hyodo became the first president crisis for the company with huge write-offs a few years selected on the basis of a recommendation from the earlier. Mr. Hyodo had been also highly respected by people committee. A majority of the committee members—three out outside the company, such as his business partners both in of five—are independent directors, and I serve as the Japan and overseas. Another factor that endorsed Mr. committee chairman. Recognizing the significance of its task, Hyodo’s candidacy was his personality—open minded, fair the committee started a selection process in August 2016 and and full of vitality. The committee became convinced that Mr. held numerous discussions over a year and three months. Hyodo’s leadership skill, combined with his personality, would enable him to successfully lead the organization and the people in time of rapidly changing business environment. He would foster corporate culture, which is both forward-looking Five qualities the president of and willing to challenge. It is my earnest hope that Mr. Hyodo will exercise his Sumitomo Corporation must possess leadership and tackle many changes with a fresh attitude. These changes include, among others, those caused by geopolitics and the Fourth Industrial Revolution with 1 Must fully understand and personify the innovation in information technology. These changes are Sumitomo’s Business Philosophy. occurring at an unprecedented pace. I hope that, instead of 2 Must be fair and impartial and do everything merely following his predecessor, Mr. Hyodo will develop his for the sake of the company. own management style and strategies and proactively 3 Must be disciplined and self-controlled. challenge new things. 4 Must possess unshakeable mental fortitude. The appointment of a new president for the first time with a recommendation of the Nomination and Remuneration 5 Must be crisis-resistant, in other words, must Advisory Committee, in my opinion, was a great step forward possess perseverance. for Sumitomo Corporation’s corporate governance. I believe this latest selection brought fairness, objectivity and transparency to the process. Important thing is to continue Must possess the ability to adapt to changes this process, refine it and evolve it further with time. I am in the business environment. determined to pursue that goal as a committee member.

90 Chapter 4 Management Base Enhancement Special Feature: Message from an Independent Director

Revisions of Remuneration System own stock while in office, so that they share value with for Executive shareholders more compared with the previous system. They are encouraged to grow business from a shareholder’s point Naming a chief executive officer was not the only duty of the of view. By introducing the new stock remuneration plan Nomination and Remuneration Advisory Committee. We also linked to financial performance, we expect to motivate had a vital task of redesigning the executive remuneration management to focus on medium-to-long term results, scheme and level. We began the revision process in summer thereby increasing corporate value in a sustainable way. This, of 2017 and hired an external consulting firm. The committee we believe, will help align executives’ interest with that of studied recent trends and analyzed domestic and foreign best shareholders. In addition, we analyzed market data on practices, as we deliberated the issue from various compensation provided by external sources and adjusted standpoints. The revision had three main aims. compensation levels for each executive rank as appropriate for the Company’s business. 1. To better align management team incentives with We changed the appraisal system, too. Under the old shareholder interests. system, greater weight was assigned to financial results in 2. To increase the weight of non-financial qualitative determining the allocation of individual performance-linked factors, including materiality issues. bonus. Under the new scheme, we increased the weight given 3. To adjust compensation standards to reflect the to qualitative factors, including handling of materiality matters. appropriate level for the current environment. This is the point the independent director members of the committee stressed strongly during the revision of the system. Under the new system, we increased variable portion of We believe that this will encourage executives to shift away compensation, thereby providing greater incentive to achieve from a simple focus on short-term financial results towards results and goals in line with medium-to-long term corporate greater commitment to medium-to-long term goals. Long- strategies. Specifically, we reduced the ratio of gross salary term focused efforts often cannot be measured quantitatively. and increased the ratio of incentive compensation. The latter This revision proposal was presented and approved at comes in the forms of stock-based remuneration and the board meeting in May 2018 and received the approval of performance-linked bonus. We changed the stock shareholders at the Ordinary General Meeting in June. It was remuneration scheme from the previous New Share adopted effective beginning of the current fiscal year. Acquisition Right, to a two-fold scheme with Restricted Sumitomo Corporation started the new Medium-term Stock-Based Remuneration and Performance Share Unit- Management Plan in April 2018 and will be celebrating the Based Remuneration. Under this new scheme, executives 100th anniversary in 2019. Along with these milestones, the

Ratios of Remuneration (Hypothetical Impression) Fixed Variable

Stock options/ Stock options for a Stock-Linked Compensation Plan Former Performance-linked bonuses System Monthly remuneration Approx. 64% Approx. 28% Approx. 8%

Transfer restricted Stock Compensation/ Performance-linked Stock Compensation New Performance-linked bonuses – – System Monthly remuneration Approx. 50% 55% Approx. 30% Approx. 15% 20% Fixed Variable

1. This chart is a hypothetical impression computed on the basis of a prescribed corporate performance and the share prices of the Company’s stock, with the aforementioned ratios subject to fluctuation pursuant to changes in corporate performance and the Company’s share price. 2. The chairman of the board of directors shall not be paid performance-linked bonuses.

91 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

new remuneration system will help generate a higher level of it is vital that the board recognizes its fiduciary duties to value creation and business growth for the company. shareholders in overseeing the management and performing I believe that this revision has positioned Sumitomo the duties with diligence. To do that, I believe board members Corporation’s executive remuneration system among must always consider what issues the board should address progressive ones in Japan. As business conditions change and identify pertinent discussion topics. It is critical that board from time to time, however, the system needs to evolve meeting agenda be carefully developed among the further. The committee will continuously upgrade the system management and the board members. One example is so that the executives of the company will align their target business portfolio strategy. As an integrated trading company, vector with the interest of the shareholders. We aim to Sumitomo Corporation conducts business and invests in continuously refine compensation structure that would induce highly diverse fields. This being the case, the current business output mutually beneficial for shareholders and management. portfolio consists of both legacy businesses accumulated from past projects and businesses which are newly developed. As the business environment changes, it is extremely important for the Company to adjust portfolio mix Toward Even Stronger Governance appropriate for medium to long term goals. Sumitomo Corporation should proactively manage its business portfolio I have been an independent director of this company for two in order to achieve sustainable business growth. I would expect years. During that time I observed that the board discussions the board to discuss this issue more rigorously going forward. became more lively engaged with each meeting. I also As I have thus explained, Sumitomo Corporation’s believe that the content of the discussions have become governance has been steadily progressing, but there is still more substantial and better focused. These opinions are well room for improvement. For my part, as an independent reflected in the self-assessment of the board, which is carried director and a member of Nomination and Remuneration out by all board members and auditors once a year. These Advisory Committee, I intend to support efforts to strengthen participants view, according to the self-assessment, that the the company’s governance and further improvements in the board functions better than before not only as a means for remuneration system through discussions both at the board formal governance but also as a forum to exchange level and with management. I would like to contribute to substantive ideas. Sumitomo Corporation in realizing its goals and healthy In order to raise the level of the Company’s governance, increase in corporate value.

92 Chapter 4 Management Base Enhancement Corporate Governance

Corporate Governance

Corporate Governance Principles and System Corporate governance principles System and features of corporate governance Sumitomo Corporation established the “Sumitomo Corporation We have adopted a company with Audit & Supervisory Board Corporate Governance Principles” while keeping in mind that Member system, as we believe that strengthening and the backbone of our corporate ethics is in “Sumitomo’s enhancing this system is the most effective means of Business Philosophy” and “Management Principles.” The improving the effectiveness of corporate governance. In Sumitomo Corporation Corporate Governance Principles were addition, we have appointed five Outside Directors with a established based on our view that the essence of corporate view to ensuring appropriate decision-making by the Board of governance is “improving management efficiency” and Directors and further strengthening supervision. “maintaining sound management,” as well as “ensuring Our “Medium-Term Management Plan 2020,” which began management transparency” to secure the first two. Following in fiscal 2018, also includes initiatives for strengthening functions the Sumitomo Corporation Corporate Governance Principles, for monitoring by the Board of Directors, such as more we are always seeking to establish the most appropriate thorough reporting in relation to business portfolio strategy, managerial system for the Company and are strengthening with the aim of further enhancing corporate governance. our corporate governance to realize management that serves the interests of shareholders and all other stakeholders.

Overview of Corporate Governance System (As of August 1, 2018) Form of organizational structure Company with Audit & Supervisory Board Number of Directors 11 (5 of whom are Outside Directors); 1-year term Term of Chairman of the Board of Directors, President and No more than 6 years, in principle Chief Executive Officer, and Outside Directors Number of Audit & Supervisory Board Members 5 (3 of whom are Audit & Supervisory Board Members); 4-year term Executive Officers Executive officer system adopted Voluntarily established bodies as advisory bodies to the Nomination and Remuneration Advisory Committee Board of Directors www.sumitomocorp.com/en/-/media/Files/hq/about/governance/detail/ Sumitomo Corporation Corporate Governance Principles principle.pdf www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/cgr. Corporate Governance Report pdf?la=en Standards for Appointment and Independence of Outside www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/ Directors and Outside Audit & Supervisory Board Members outdirec_independ.pdf?la=en Accounting auditors KPMG AZSA LLC

Corporate Governance System

General Meeting of Shareholders

Election/Dismissal

Nomination and Report Directors Audit & Supervisory Board Members Remuneration Accounting Auditors Advisory Committee Board of Directors Audit Audit & Supervisory Board Report (Chairman of the Assistance Board of Directors) Accounting Audit & Supervisory Board (Collaboration) Audit Election/Dismissal/Supervision Audit Members’ Administration Dept.

President and Chief Executive Officer Internal Auditing Dept. Management Council

Company Investment Committee Internal Audit Medium-term Management Plan Promotion Support Committee Business Units Domestic and Overseas Offices Internal Control Committee Corporate Group Subsidiaries and Compliance Committee Associated Companies Corporate Sustainability Committee

93 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Directors and the Board of Directors Composition of the Board of Directors Nobuyoshi Ehara: Wide-ranging knowledge and a wealth of The composition of the Board of Directors ensures diversity in experience in finance and business management accumulated during many years of engagement in a major U.S. financial institution and the experience, knowledge, expertise, gender, and so on. In June management of a private-equity firm 2018, the number of Outside Directors was raised from three Koji Ishida: Wide-ranging knowledge and a wealth of experience in to five (of which two are female), and this increase in the ratio finance and business management accumulated during many years of engagement in a major financial institution and past position as a of Outside Directors resulted in the further reinforcement of member of the Policy Board at the Bank of Japan functions for supervising the execution of management. Kimie Iwata: Wide-ranging knowledge and a wealth of experience in business management, corporate governance, corporate social responsibility, and diversity accumulated in managerial and outside Improvement of deliberation and enhancement of director positions for private companies, before which she served in a monitoring function at the Board of Directors succession of key positions in the Ministry of Labour (now the We carefully select agenda items requiring discussion by the Ministry of Health, Labour and Welfare) over the course of many years Hisashi Yamazaki: Highly specialized knowledge and a wealth of Board of Directors so that the Board of Directors can experience in law accumulated over the course of many years as a concentrate on the deliberation of important matters judge and an attorney at law regarding the Companywide management such as the business policy and management plan. At the same time, we Establishment of the Nomination and Remuneration have increased the matters to be reported to the Board of Advisory Committee Directors to make it possible for the Board of Directors to The Nomination and Remuneration Advisory Committee, of concentrate more on supervising the execution of operations, which a majority of members are Outside Directors, and so that the Board of Directors can enhance its monitoring which is also chaired by an Outside Director, has been function. We have also established opportunities for free established as an advisory body to the Board of Directors. exchange of opinion before decisions on important matters. This Committee nominates candidates for Director, Audit & Supervisory Board Member, and Management Council Qualifications of outside directors and implementing Member (including deciding Representative Directors and regular meetings for exchanges of opinions Executive Directors and nominating successors to the Our five Outside Directors satisfy the standards on President and Chief Executive Officer). In addition, the independence set by Tokyo Stock Exchange, Inc. (TSE), and Committee discusses the structure and level of remuneration other financial instruments exchanges on which the Company and bonuses for Directors and Executive Officers, as well as is listed, as well as our in-house rules on Standards for the revision of limits for remuneration of Audit & Supervisory Appointment and Independence of Outside Directors and Board Members, and reports the outcome to the Board of Outside Audit & Supervisory Board Members. Leveraging a Directors. In April 2018, a new President and Chief Executive different type of experience and expertise, each Outside Officer was appointed by a resolution of the Board of Director contributes to our corporate governance by providing Directors that had received the report of the Committee. a variety of independent viewpoints. With the previous President and Chief Executive Officer In addition, Outside Directors hold discussions and approaching the limit of his six-year term as prescribed in the exchanges of opinions with the Chairman of the Board of Sumitomo Corporation Corporate Governance Principles, the Directors, the President and Chief Executive Officer, Internal Nomination and Remuneration Advisory Committee Audit & Supervisory Board Members, and Outside Audit & conducted discussions in relation to the qualifications of the Supervisory Board Members once a month, in principle. new President and Chief Executive Officer, as well as gathering and analyzing information and exchanging opinions Reasons for appointing outside directors in preparation for the nomination process. Having passed a We deemed the respective Outside Directors to be qualified for unanimous resolution on a candidate for the new President appointment because of the experience stated below, which and Chief Executive Officer, the Committee made its report to will contribute to appropriate decision-making at meetings of the Board of Directors. the Board of Directors and further strengthen supervision. Composition of the Nomination and Remuneration Yayoi Tanaka: Highly specialized knowledge and extensive experience Advisory Committee accumulated through long engagement in research in the fields of Total Outside Committee evaluation studies and civil society organizational theory and the Internal Directors holding of a number of positions on government committees, Members Directors Chairman including the Administrative Reform Promotion Council (private-sector 2 persons (President and Chief member) Outside 5 persons Executive Officer, Chairman of 3 persons Director the Board of Directors)

94 Chapter 4 Management Base Enhancement Corporate Governance

Evaluation of the effectiveness of the Board reforms have steadily produced results and that these of Directors efforts were also viewed positively by the external To maintain and heighten the effectiveness of the Board executives. On the other hand, to achieve further of Directors, each year Directors and Audit & Supervisory improvements in effectiveness, the evaluation identified Board Members analyze and evaluate its effectiveness issues such as further enhancement of the deliberations through the use of self-evaluations etc. We disclosed a of the Board of Directors and improvement of the summary of the results. information provided to Directors. Going forward, after The evaluation of effectiveness of the Board of discussion by the Board of Directors, we will take initiatives Directors and its results for fiscal 2017 is summarized below: to further improve the effectiveness of the Board.

1. Evaluation method Issues raised by the evaluation of the Board of (1) Those covered: All members of the Board of Directors Directors and key initiatives to be taken (nine persons) and Audit & Supervisory Board Members Issues that were raised in the Board of Directors’ (five persons) evaluation for fiscal 2016 included improving the quality of (2) Implementation method: Conducted using anonymous materials distributed at meetings of the Board of questionnaire from March to April 2018. Directors and encouraging discussions among internal Note: A third party (external consultant) was used in the conduct of and outside directors. In fiscal 2017, measures to further the evaluation. improve the effectiveness of the Board of Directors were (3) Items evaluated: implemented in response to these issues. The measures (i) Roles/responsibilities of the Board of Directors included creating a glossary to explain the terminology (ii) Composition of the Board of Directors used in materials distributed to the Board of Directors, (iii) Roles of Directors and qualifications for appointment and the continuance of giving a briefing on discussion (iv) Administration of the Board of Directors points from the Management Council before presenting (4) Evaluation process: Questionnaire responses collated by an item for deliberation by the Board of Directors. the third party (external consultant) were analyzed and Meanwhile, the Nomination and Remuneration the results reported to the Board of Directors. Advisory Committee discussed ideas for a remuneration system and a set of performance evaluation standards for 2. Overview of the evaluation results Directors and officers taking into account incentives for The results were generally positive for all of the items medium- to long-term increase in corporate value and evaluated. The external consultant commented that sustained growth. Based on the Committee’s report, the various reforms have been made with the aim of realizing Board of Directors resolved to revise the directors’ and a more effective Board of Directors and that these officers’ remuneration systems.

Management Council Changing the Management Council to the all chief officers of the Corporate Group, and the general decision-making body manager of each of the business units. In addition, in regard In July 2015, the Management Council was reorganized to to specific issues that are extremely important from a become the highest executive level decision-making body, Companywide perspective, the Company has established, as with the aim of enabling decisions that take into account advisory bodies to the President and Chief Executive Officer diverse opinions and multifaceted discussions in regard to and to the Management Council, committees such as the specific key matters related to management, within the scope Company Investment Committee, the Medium-term of the mandate conferred by the Board of Directors. Management Plan Promotion Support Committee, the The Management Council, which meets in principle once Internal Control Committee, the Compliance Committee, and a week, consists of the President and Chief Executive Officer, the Corporate Sustainability Committee.

95 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Audit & Supervisory Board Members and the Audit & Supervisory Board Enhancement of auditing capabilities By attending audit review meetings and observing inventory In order to reinforce the audit function from an external audits with the accounting auditors, the Audit & Supervisory perspective, three of the five Audit & Supervisory Board Board Members constantly work to improve audit efficiency Members are Outside Audit & Supervisory Board Members. and quality. Furthermore, Audit & Supervisory Board Of these, two are legal experts, and one is a specialist in Members attend meetings of the Internal Control Committee accounting, such that the audit system incorporates diverse and request reports on the status of internal control systems perspectives. Moreover, our three Outside Audit & from other departments responsible for internal control, along Supervisory Board Members satisfy standards on with requiring their cooperation on audits. independence stipulated by TSE and other financial instruments exchanges on which the Company is listed and Ensuring Audit Effectiveness our in-house rules on Standards for Appointment and Audit & Supervisory Board Members attend meetings of the Independence of Outside Directors and Outside Audit & Board of Directors and all other important internal meetings, Supervisory Board Members. to obtain the information necessary for proper auditing. Audit & Supervisory Board Members also meet the Chairman of Collaboration between the Internal Auditing Department the Board of Directors and the President and Chief Executive and accounting auditors Officer, in principle once a month, to exchange opinions on To ensure audit efficiency, Audit & Supervisory Board Members material issues regarding management policy and auditing. interact closely with the Internal Auditing Department, Moreover, the Audit & Supervisory Board Members’ receiving reports on internal audit plans and their results in a Administration Department is assigned to assist Audit & timely manner. In addition, Audit & Supervisory Board Supervisory Board Members, so that the auditing system Members exchange information with and monitor the auditing functions effectively and without hindrance. activities of the accounting auditors through regular meetings.

Initiatives to Ensure Transparency of Business Management Establishment of disclosure policy Measures relating to the General Meeting of Shareholders To ensure that all stakeholders correctly understand its We send out a Notice of Convocation to shareholders business management policy and business activities, the approximately three weeks prior to each regularly scheduled Company not only discloses statutorily required information General Meeting of Shareholders. For the convenience of but also actively discloses information on a voluntary basis. overseas shareholders, we also provide an English-language Moreover, the Company established the Corporate Disclosure translation of the notice on our website in advance of sending Policy in July 2016. a Notice of Convocation. We have allowed our shareholders to exercise their voting rights via the Internet using personal computers since 2004 and via the Internet using mobile phones since 2005. In 2007, we introduced the Electronic Voting Platform operated by Investor Communication Japan, Inc. (ICJ) a body established by TSE and other parties. The new platform allows institutional investors sufficient time to thoroughly examine the propositions to be resolved at the meeting. In addition, we stream video of the General Meeting of Shareholders on our website for a period of one year after the close of the meeting.

• For details on the Corporate Disclosure Policy, please visit the following website. www.sumitomocorp.com/en/-/media/Files/hq/about/governance/detail/disclosurepolicy160701.pdf

96 Chapter 4 Management Base Enhancement Corporate Governance

Senior Advisors, Honorary Advisors (1) Appointment of former President and Chief Executive decision-making. Officers, etc., as Senior Advisors or Honorary Advisors. In order that the President and Chief Executive Officer or In some cases, individuals with experience as President and Chairman of the Board of Directors can concentrate on Chief Executive Officer or Chairman of the Board of Directors corporate management with a view to enhancing corporate are appointed as Senior Advisors. There are also cases where value, Senior Advisors are engaged full-time in external such persons are appointed as Honorary Advisors after activities in place of the President and Chief Executive Officer resigning as Senior Advisor. or Chairman of the Board of Directors, and are paid (2) Duties and remuneration of Senior Advisors and Honorary remuneration appropriate to such duties. Advisors Honorary Advisors engage in external activities on a Neither Senior Advisors nor Honorary Advisors engage in any part-time basis as required, and are paid remuneration execution of the Company’s business or its management appropriate to such duties.

Remuneration of Directors and Audit & Supervisory Board Members The details of the structure and level of remuneration and (performance-linked bonuses reflecting short-term results, bonuses for Directors, as well as the limits for remuneration and stock compensation keyed to medium- to long-term of Audit & Supervisory Board Members, are evaluated by the results and shareholder value), the remuneration system Nomination and Remuneration Advisory Committee, an provides a sound incentive toward sustainable growth. advisory body to the Board of Directors of which a majority of • Through strengthening the relationship between members are Outside Directors, and which is chaired by an performance-linked bonuses and the management Outside Director. The Committee reports the results of its strategies of the Sumitomo Corporation Group, we deliberations to the Board of Directors. encourage the execution of duties compatible with In this way we strive to further improve the transparency management strategies and generate strong motivation to and objectivity of remuneration. achieve specific management goals. Based on these reports, the specific composition and • With regard to a stock compensation plan, by further decision methods related to remuneration have been reinforcing the linkage to shareholder value, we promote established as follows. initiatives to enhance corporate value over the medium to long term, and deepen the sharing of values with Director remuneration (excluding that of the chairman of shareholders. the Board of Directors and outside directors) Remuneration ratios and levels With the goal of enhancing the corporate governance of the • In order to strengthen incentives for corporate performance Sumitomo Corporation Group and enhancing the corporate based on management strategies, and improved corporate value of the Company over the medium to long term, the value over the medium to long term, the ratio of fixed following has been established in order to implement a compensation to variable compensation is set to an remuneration system that supports sustainable growth in line appropriate level. with management strategies. • Referring to objective market survey data on remuneration provided by external specialist institutions, appropriate Basic policy remuneration levels are set after considering the • By setting an appropriate ratio of fixed compensation management environment of the Company. (monthly remuneration) to variable compensation

Ratios of Remuneration (Hypothetical Impression) Restricted stock-based Monthly remuneration Performance-linked bonuses compensation / Performance share unit-based Approx. 50–55% Approx. 30% stock compensation Approx. 15%–20%

Fixed Variable This chart is a hypothetical impression computed on the basis of a prescribed corporate performance and the share prices of the Company’s stock, with the aforementioned ratios subject to fluctuation pursuant to changes in corporate performance and the Company’s share price.

97 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Overall Picture of the Executive Remuneration System ( , , and show the respective recipients of the remuneration, etc.) Recipient Directors / Chairman of Audit & Type of remuneration Details of remuneration, etc. Outside Executive the Board of Supervisory Directors Officers (Note 1) Directors Board Members Monthly Fixed A fixed amount paid monthly in accordance with position remuneration (Note 2) From the perspective of strengthening the relationship between the management strategies of the Sumitomo Corporation Group and performance-linked bonuses, an amount equivalent to a certain ratio of Performance-linked the “basic profit cash flow” and “consolidated net income” performance – – – bonuses (Note 3) management indicators that are emphasized in the medium-term management plan is deemed to be the total amount payable, and is allocated in accordance with positions and individual evaluations. Restricted-transfer common shares of the Company are allocated every year, in principle. In order to accomplish the sharing of values Restricted with shareholders over the medium to long term, which is one of the Variable stock-based purposes of implementing the system, the period of transfer compensation – – restrictions is deemed to hold from the date on which the stock is (Restricted stock) (Notes 2 and 4) allocated to the date on which the individual retires or resigns from any of the posts of Director, Executive Officer, or some other positions prescribed by the Board of Directors. Performance share Every year (in principle), a number of common shares of the Company unit-based stock decided according to the growth rate of the Company’s shares (calculated compensation during the three-year evaluation period by dividing the Company’s total – – (Performance share shareholder return (TSR) by the growth rate of Tokyo Stock Exchange Stock unit) (Notes 2 and 4) Price Index (TOPIX)) shall be allocated at the end of the evaluation period.

Notes: 1. Excluding the Chairman of the Board of Directors and Outside Directors. 2. With regard to monthly remuneration, restricted stock-based compensation and performance share unit-based stock compensation for Directors (marked with above), at the 150th Ordinary General Meeting of Shareholders held on June 22, 2018, it was resolved that the upper limit be set to ¥1.2 billion per year (of which the remuneration for Outside Directors was set to ¥100 million per year), based on which the amount paid to each Director is to be resolved at a meeting of the Board of Directors. In addition, in relation to the monthly remuneration for Audit & Supervisory Board Members (marked with above), it was resolved at the 145th Ordinary General Meeting of Shareholders held on June 21, 2013, that the upper limit be set to ¥180 million, based on which the amount of remuneration for individual Audit & Supervisory Board Members is resolved by discussions of the Audit & Supervisory Board. 3. With regard to performance-linked bonuses for Directors (marked with above), because the linkage to performance is strong, it shall be paid every year after a resolution of the General Meeting of Shareholders Moreover, the Chairman of the Board of Directors and Outside Directors shall not receive performance-linked bonuses. 4. The total value of monetary remuneration receivables in order to allocate stock compensation, and the upper limit to the total number of common shares of the Company issued or disposed of, are as follows. In addition, the first occasion on which common shares of the Company will be allocated as performance share unit-based stock compensation will be at the end of the first evaluation period (around August 2021).

Directors (excluding Outside Directors) among those indicated Directors (excluding Outside Directors) and Executive Officers on the left Total value of monetary Total number of common Total value of monetary Total number of common remuneration receivables shares of the Company remuneration receivables shares of the Company Restricted stock-based Up to ¥520 million per year Up to 490,000 shares per year Up to ¥130 million per year Up to 120,000 shares per year compensation Performance share unit-based Up to ¥1,700 million per year Up to 730,000 shares per year Up to ¥430 million per year Up to 180,000 shares per year stock compensation Total Up to ¥2,200 million per year Up to 1,220,000 shares per year Up to ¥560 million per year Up to 300,000 shares per year

Note: In setting the total value of monetary remuneration receivables and the total number of common shares of the Company (upper limit) referred to above with reference to the performance share unit-based stock compensation, the growth rate of the Company’s shares during the three-year evaluation period, among other factors, is taken into account and it is assumed that the total number of common shares of the Company allocated (and the total value of monetary remuneration receivables paid in that regard) shall be the maximum possible. Details of Executive Remuneration, etc.

Number of Total amount of remuneration Breakdown (millions of yen) Classification recipients pertaining to fiscal 2017 Monthly Directors’ Stock options (persons) (millions of yen) remuneration bonuses Directors (of which Outside Directors) 15 (5) 810 (41) 571 (41) 174 (–) 64 Audit & Supervisory Board Members (of which 5 (3) 124 (38) 124 (38) – (–) – (–) Outside Audit & Supervisory Board Members)

Notes: 1. As of the end of fiscal 2017, there were nine Directors and five Audit & Supervisory Board Members (including three Outside Directors and three Outside Audit & Supervisory Board Members). 2. The numbers in the table above include one Outside Director who passed away (and thus effectively resigned) on April 6, 2017, and one Outside Director who resigned on April 30, 2017. 3. No Director of the Company is concurrently an employee of the Company. 4. The maximum amount of remuneration to Directors comprising monthly remuneration, new share acquisition rights in the form of stock options, and new share acquisition rights in the form of stock options for a stock compensation plan is ¥1.2 billion per year (the maximum amount of remuneration to Outside Directors is ¥60 million per year), as resolved at the 145th Ordinary General Meeting of Shareholders held on June 21, 2013. 5. The amounts in “Directors’ bonuses” above are the upper limit of the total amounts payable approved at the 150th Ordinary General Meeting of Shareholders held on June 22, 2018. 6. The maximum amount of monthly remuneration to Audit & Supervisory Board Members is ¥180 million per year, as resolved at the 145th Ordinary General Meeting of Shareholders held on June 21, 2013. 7. In the value given in the “Breakdown” for Directors, amounts below ¥1 million are rounded off, as a result of which the total for these figures and the total value of remuneration, etc., for Directors do not match.

98 Chapter 4 Management Base Enhancement Directors, Audit & Supervisory Board Members, and Executive Officers

Directors, Audit & Supervisory Board Members, and Executive Officers (As of August 1, 2018, Executive Officers : As of October 1, 2018) * Shares owned in the Company (As of March 31, 2018) Attendance at Meetings of the Board of Directors in fiscal 2017

Directors

Kuniharu Nakamura Masayuki Hyodo Hideki Iwasawa Koji Ishida Independent Director Kimie Iwata Independent Director

Chairman Representative Director Representative Director Outside Director Outside Director *100,600 shares *24,400 shares *55,800 shares *0 share *0 share 21/21 — 21/21 17/17 —

April 1974: April 1984: April 1977 May 1970: Entered The Sumitomo Bank, Limited April 1971: Entered the Ministry of Labour (currently Entered the Company Entered the Company Entered the Company June 1997: Director, The Sumitomo Bank, Limited Ministry of Health, Labour and Welfare) June 2012: June 2018: April 2017 June 1999: Executive Officer, July 1996: Deputy Director-General, Human Resource Representative Director, Representative Director, Representative Director, The Sumitomo Bank, Limited Development Bureau, Ministry of Labor President and CEO President and Executive Vice President, January 2001: Managing Executive Officer, General Manager October 1998: Assistant Minister of Labor for International of Corporate Planning Dept., Affairs June 2017: Chief Executive Officer Chief Administration Officer The Sumitomo Bank, Limited January 2001: Director-General of Equal Employment, Representative Director, and Chief Compliance Officer April 2001: Managing Executive Officer, General Manager Children and Families Bureau President and of Corporate Planning Dept., Sumitomo Mitsui (retired in August 2003) Chief Executive Officer Banking Corporation (SMBC) June 2004: Director, Corporate Officer, June 2018: June 2002: Managing Executive Officer, Head of Tokyo Shiseido Company, Limited Chairman of Corporate Banking Division I, SMBC January 2007: Member, Council for Gender Equality, the Board of Directors June 2003: Representative Director, Managing Director, the Cabinet Office Sumitomo Mitsui Financial Group, Inc. (SMFG) April 2007: Director, Corporate Executive Officer, April 2004: Representative Director, Senior Managing Shiseido Company, Limited Director, SMFG April 2008: Director and Vice President, Masahiro Fujita Koichi Takahata Hideki Yamano June 2005: Standing Corporate Auditor, SMFG Shiseido Company, Limited (retired in June 2006) June 2008: Representative Director, Executive Vice Representative Director Representative Director Representative Director Corporate Auditor, SMBC President, Shiseido Company, Limited *44,300 shares *33,400 shares *5,952 shares (retired in June 2006) April 2011: Member, Administrative Council, the — 21/21 — June 2006: President & CEO, SMBC Leasing Co., Ltd. University of Tokyo (present position) October 2007: President, Sumitomo Mitsui Finance and March 2012: Outside Audit & Supervisory Board Member, November 2010: April 1978: April 1983: Leasing Co., Ltd. (SMFL; retired in June 2011)*2 Kirin Holdings Company, Limited Executive Officer, Entered the Company Entered the Company June 2011: Member of the Policy Board, the Bank of April 2012: Director, Shiseido Company, Limited Sumitomo Corporation April 2017: June 2018: Japan (retired in June 2016) June 2012: Adviser, Shiseido Company, Limited June 2018: Representative Director, Representative Director, June 2017: Outside Director, Sumitomo Corporation (retired in June 2016) Representative Director, Senior Managing Managing Executive Officer, (present position) July 2012: Outside Director, Japan Airlines Co., Ltd. Executive Vice President, Executive Officer, Chief Strategy Officer and July 2017: Member of the Public Interest Oversight President, Japan Institute for Women's General Manager, Chief Financial Officer Chief Information Officer Committee, KPMG AZSA LLC (present position) Empowerment & Diversity Management Mineral Resources, Energy, August 2012: Director, Japan Corporate Governance Chemical & Electronics *2 In October 2007, SMBC Leasing Co., Ltd. merged with Network (present position) Business Unit Sumisho Lease Co., Ltd. to become SMFL. Mr. Ishida continued in June 2013: Director, Tsuda University (present position) office as president of SMFL, retiring in June 2011. September 2013: Commissioner, the Consumer Commission, the Cabinet Office October 2015: Audit and Inspection Commissioner, the Yayoi Tanaka Independent Director Nobuyoshi Ehara Independent Director Tokyo Metropolitan Government (present position) Outside Director Outside Director March 2016: Outside Director, Kirin Holdings Company, Limited (present position) *1,600 shares *0 share April 2016: Outside Director, Stripe International Inc. 21/21 20/21 Hisashi Yamazaki Independent Director (present position) April 1982: Entered Nippon Kogaku K.K. September 1978: June 2018: Outside Director, Sumitomo Corporation (currently Nikon Corporation) Entered Morgan Guaranty Trust Company Outside Director (present position) *0 share September 2006: Associate Professor, Center for International October 1980: Relations, National Institution for Academic Entered Goldman Sachs & Co. — Degrees and University Evaluation*1 October 1988: January 2007: Member, Fiscal System Council, Ministry of April 1974: Assistant Judge Partner, Goldman Sachs & Co. Finance (present position) April 1995: Presiding Judge, Tokyo District Court April 2007: Associate Professor, Department of Evaluation and November 1996: December 2000: Chief, Training and Research Institute for Research, National Institution for Academic Degrees Limited Partner, Goldman Sachs & Co. Family Court Probation Officers 1 December 2002: Chief, Family Bureau, General Secretariat, and University Evaluation* January 1999: Supreme Court Part-time Lecturer, Graduate School of Public Policy, Representative Director, Unison Capital, Inc. December 2005: Chief Judge, Maebashi District Court The University of Tokyo (present position) (present position) February 2007: Chief Judge, Yokohama Family Court June 2016: February 2013: Private sector member, Administrative Reform December 2008: Presiding Judge, Tokyo High Court Outside Director, Sumitomo Corporation Promotion Council, Cabinet Secretariat August 2009: President, Tokyo Family Court (present position) (present position) February 2011: President, Sapporo High Court April 2013: Professor, Research Development Department, (retired in March 2013) National Institution for Academic Degrees and March 2013: Commissioner, Japan Fair Trade Commission University Evaluation*1 (retired in December 2015) April 2015: Member, Policy Evaluation Committee, Ministry of August 2016: Attorney at Law (present position) Internal Affairs and Communications (present position) July 2017: Supervisory Board Member, National Federation of June 2015: Outside Director, Sumitomo Corporation Agricultural Cooperative Associations (present position) (present position) April 2017: Special Appointed Professor, Research Development June 2018: Outside Director, Sumitomo Corporation Department, National Institution for Academic (present position) Degrees and Quality Enhancement of Higher Outside Director, Tokyo Commodity Exchange, Inc. Education (present position) (present position) Guest Professor, Osaka University (present position) President, Social Governance Research Institute (present position) Public Governance Advisor, Ministry of Internal Affairs and Communications (present position) June 2017: Outside Director, IHI Corporation (present position) April 2018: Special Appointed Professor, Shibaura Institute of Technology (present position)

*1 The name was changed to “National Institution for Academic Degrees and Quality Enhancement of Higher Education” on April 1, 2016.

99 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Directors

Kuniharu Nakamura Masayuki Hyodo Hideki Iwasawa Koji Ishida Independent Director Kimie Iwata Independent Director

Chairman Representative Director Representative Director Outside Director Outside Director *100,600 shares *24,400 shares *55,800 shares *0 share *0 share 21/21 — 21/21 17/17 —

*1 The name was changed to “National Institution for Academic Degrees and Quality Enhancement of Higher Education” on April 1, 2016.

100 Chapter 4 Management Base Enhancement Directors, Audit & Supervisory Board Members, and Executive Officers

*Shares owned in the Company (As of March 31, 2018) Attendance at Meetings of the Board of Directors in fiscal 2017 Attendance at Meetings of Audit & Supervisory Board in fiscal 2017

Audit & Supervisory Board Members Executive Officers

Takuro Kawahara Toshiaki Murai President and Managing Executive Officers Executive Officers Chief Executive Officer Senior Audit & Supervisory Board Member (Full-Time) Audit & Supervisory Board Member (Full-Time) Hiroki Inoue Shuichi Suzuki Yoshiyuki Sakamoto *92,700 shares *7,300 shares 21/21 14/14 — — Masayuki Hyodo General Manager for Japan Region; General Manager, Energy Division General Manager, Basic Chemicals & General Manager, Kansai Office Electronics Division April 1975: Entered the Company April 1980: Entered the Company June 2016: Senior Audit & Supervisory Board Member June 2018: Audit & Supervisory Board Member Tsuyoshi Oikawa Executive Vice Presidents Kiyoshi Sunobe General Manager, Planning & Kei Sato President and CEO, Sumitomo Coordination Dept., General Manager, Lifestyle & Hideki Iwasawa Corporation Global Research Co., Ltd. Mineral Resources,Energy, Retail Business Division Chemical & Electronics Business Unit Chief Administration Officer and Chief Compliance Officer Michihiko Hosono Norihiko Nonaka Assistant CAO, General Affairs & Legal Takeshi Murata General Manager, Global Power Masahiro Fujita Managing Director, Sumitomo Mitsui Infrastructure Business Division Finance and Leasing Co., Ltd. Haruo Kasama Toshio Nagai General Manager, Mineral Resources, Hideo Ogawa Energy, Chemical & Electronics Masaru Shiomi Independent Audit & Supervisory Board Member Independent Audit & Supervisory Board Member Business Unit Assistant CFO, Risk Management Keiji Tanaka Assistant CFO, Finance President and CEO, Outside Audit & Supervisory Board Member (Lawyer) Outside Audit & Supervisory Board Member (Lawyer) Daisuke Mikogami Jupiter Shop Channel Co., Ltd. *12,600 shares *0 share Senior Managing Representative Director, Executive Iehisa Nakamura 19/21 14/14 21/21 14/14 Executive Officers Vice President, SCSK Corporation Reiji Morooka General Manager, Media Division April 1974: Public Prosecutor April 1974: Assistant Judge Managing Director, June 2001: Chief Public Prosecutor of the Kofu Public April 1986: Judicial Research Official, Supreme Court Koichi Takahata Shoichiro Oka Sumitomo Mitsui Finance and Bin Haga Prosecutor’s Office April 1997: Presiding Judge, Tokyo District Court Leasing Co., Ltd. October 2002: Deputy Public Prosecutor of the Tokyo District September 2001: Senior Judicial Research Official, Chief Financial Officer General Manager, Transportation & General Manager, Corporate Planning & Public Prosecutor’s Office Supreme Court Construction Systems Business Unit Coordination Dept. June 2005: Deputy Public Prosecutor of the Tokyo High December 2006: Chief Judge, Kofu District/Family Court Takayuki Seishima Public Prosecutors Office December 2007: Presiding Judge, Tokyo High Court Masao Sekiuchi June 2006: Director of Criminal Division in Supreme Public November 2008: Chief Judicial Research Official, General Manager for Asia & Oceania; Tsutomu Akimoto Assistant CAO, Secretary & Kenji Shinmori Prosecutors Office Supreme Court CEO of Sumitomo Corporation Asia & General Manager, Infrastructure Human Resources General Manager, October 2007: Deputy Prosecutor-General March 2012: President, Hiroshima High Court Oceania Group; Business Unit Corporate Communications Dept. January 2009: Superintendent Public Prosecutor of the March 2013: President, Osaka High Court President and CEO, Sumitomo Hiroshima High Public Prosecutors Office (retired in July 2014) Corporation Asia & Oceania Pte. Ltd. Toyoaki Funakoshi June 2010: Superintendent Public Prosecutor of the Tokyo September 2014: Attorney at Law (present position) Masato Ishida General Manager, Planning & Shinji Nakano High Public Prosecutors Office June 2015: Outside Corporate Auditor, General Manager for Europe, Coordination Dept., Assistant General Manager for December 2010: Prosecutor-General (retired in July 2012) Toray Industries, Inc. (present position) Masato Sugimori Middle East, Africa & CIS; Infrastructure Business Unit Asia & Oceania; October 2012: Attorney at Law (present position) June 2016: Outside Audit & Supervisory Board Director, Executive Vice President, Chairman of Sumitomo Corporation President and CEO, June 2013: Outside Audit & Supervisory Board Member, Member, Sumitomo Corporation Jupiter Telecommunications Co., Ltd. Europe Holding Limited Sumitomo Corporation Thailand, Ltd., Sumitomo Corporation (present position) (present position) Masaki Nakajima President and CEO, Outside Director, JAPAN POST HOLDINGS Assistant General Manager for the Sumi-Thai International Limited Co., Ltd. (retired in June 2016) Akira Satake Nobuki Ando Americas; Outside Audit & Supervisory Board Member, General Manager, Living Related & Executive Vice President and Sompo Holdings, Inc. (retired in June 2017) Director, Executive Vice President, Real Estate Business Unit CFO of Sumitomo Corporation Mitsuhiro Takeda February 2014: Outside Corporate Auditor, Kewpie Sumitomo Precision Products Co., Ltd. of Americas Group; Assistant General Manager for the Corporation (retired in February 2018) Executive Vice President and Americas; June 2018: Outside Audit & Supervisory Board Member, Makoto Horie Hideki Yamano CFO of Sumitomo Corporation Executive Vice President and Toppan Printing Co., Ltd. (present position) of Americas General Manager, Metal Products Chief Strategy Officer and Deputy CFO of Sumitomo Corporation Business Unit Chief Information Officer of Americas Group; Executive Vice President and Keigo Shiomi Deputy CFO of Sumitomo Corporation Toshikazu Nambu General Manager, Metal Products for of Americas Automotive Industry Division; General Manager, Deputy General Manager, Automotive Yoshitaka Kato Media & Digital Business Unit Manufacturing Business Division Shinichi Kato Independent Audit & Supervisory Board Member General Manager, Fumihiro Koba Automobility Business Division Outside Audit & Supervisory Board Member Masatoshi Deguchi General Manager for East Asia; (Certified Public Accountant) General Manager, Internal Auditing Dept. CEO of Sumitomo Corporation China Group; Hirokazu Higashino *0 share General Manager, Sumitomo Corporation (China) 21/21 14/14 Holding Ltd. General Manager, Materials, Koji Tamefusa Supplies & Real Estate Division November 1974: Entered Tetsuzo Ota & Co.*3 Director, Senior Managing Executive Officer, September 1978: Certified Public Accountant (present position) Shingo Ueno SCSK Corporation May 1998: Representative Associate, Showa Ota & Co.*3 3 General Manager for the Americas; June 2006: Executive Director, Ernst & Young ShinNihon* President and CEO of Sumitomo Corporation Yasushi Fukuda August 2008: CEO, Ernst & Young ShinNihon LLC of Americas Group; (retired from Ernst & Young ShinNihon LLC in Director and President of Sumitomo Corporation General Manager, Logistics Infrastructure June 2014) of Americas Business Division June 2015: Outside Corporate Auditor, Sumitomo Chemical Company, Limited (present position) Outside Corporate Auditor, Mitsui Fudosan Co., Ltd. (present position) Auditor, the General Insurance Rating Organization of Japan (present position) June 2016: Outside Audit & Supervisory Board Member, Sumitomo Corporation (present position)

*3 The name was changed to “Ernst & Young ShinNihon LLC” on July 1, 2018.

101 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

*Shares owned in the Company (As of March 31, 2018) Attendance at Meetings of the Board of Directors in fiscal 2017 Attendance at Meetings of Audit & Supervisory Board in fiscal 2017

Audit & Supervisory Board Members Executive Officers

*3 The name was changed to “Ernst & Young ShinNihon LLC” on July 1, 2018.

102 Chapter 4 Management Base Enhancement Internal Control

Internal Control

Basic Principles and System Basic principles of internal control system Internal Control System (definitions/purpose) President and CEO The Sumitomo Corporation Group comprises six business Management Council units as well as regional organizations in Japan and overseas. Business units, organizations, and Group companies Medium-term Management Plan collectively work together in a broad range of business fields. Promotion Support Committee In order to realize sustainable growth and development Corporate Sustainability Committee for the Sumitomo Corporation Group, as well as enhance the operational quality of each of the Group companies, we Major committees related to internal control stipulate basic regulations for internal control, and practice the Internal Control Committee construction, management, evaluation, and revision of Compliance Committee appropriate internal control systems. To rationally ensure compliance with laws and regulations Company Investment Committee throughout the entire Group in relation to business activities, Information Security Committee preservation of assets, efficiency and efficacy of operations, and trustworthiness of financial reporting, initiatives are being Security Management Meeting taken to improve Group governance.

Compliance Basic policy Compliance management system The basis for the Sumitomo Corporation Group’s compliance Aiming for more agile responses to compliance issues which is to win the trust of society by practicing the Activity arise in the Group, Sumitomo Corporation appoints a Chief Guideline that states “to comply with laws and regulations Compliance Officer (CCO), who has ultimate responsibility for while maintaining the highest ethical standards.” compliance. Further, the Compliance Committee, which plans Accordingly, we follow our principles of “Giving First compliance measures, includes the general managers not Priority to Compliance,” which means compliance takes only of the Corporate Group but also of the business priority over all activities of the Group and that we must divisions, enabling it to examine such measures in a never violate compliance as a result of giving priority to the multifaceted way that reflects our actual business operations. pursuit of profit, and “Reporting Compliance Issues Our Group will continuously aim to establish and improve the Immediately,” which means, in the event of a compliance internal systems that realize our principle of “Giving First problem, employees must report the situation without delay Priority to Compliance.” to their line manager or to the relevant department of the Corporate Group.

Compliance Management System

Sumitomo Corporation

President and CEO Audit & Supervisory Board Members

Chief Compliance Officer (CCO) Compliance Committee (Chief Administration Officer) Planning of compliance measures

Chairperson: CCO Corporate Group Business Units Domestic Offices Overseas Regions Members: Assistant CAO (General Affairs & Legal), General Managers of Corporate Planning & Coordination Dept., Compliance Compliance Compliance Human Resources Dept., Legal Dept., Legal Compliance Leaders Leaders Leaders Dept., Accounting Controlling Dept., Risk Management Dept. No.1, and 2 Business Division General Managers Officers/Employees Secretariat: Legal Compliance Dept.

103 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Speak-Up System Continuous education program initiatives In case of a compliance problem, such as a violation of antitrust We have summarized into 19 separate themes the issues that or anti-bribery/corruption regulations as well as workplace we consider important, such as antitrust, security trade misconduct, we have put in place a Speak-Up System that control, and anti-bribery/corruption, and we have disclosed enables employees to contact the CCO through a hotline in our policies regarding these in the form of our Compliance addition to the respective organizational reporting lines. Guiding Principles. The Compliance Manual, which adds Under the System, the fact and details of the report are commentary on the Principles, and summarizes the laws, maintained in the strictest confidence, and it is ensured that regulations, and internal rules on which it is based, is the whistle-blower is not subject to disadvantageous distributed to all employees of Sumitomo Corporation. treatment for making the report. Further, we work to promote Furthermore, both in Japan and overseas, we implement and raise awareness of the system by conducting seminars various education programs for each class of employee, such and publishing internal guidelines. We also distribute to all as newcomers, newly appointed general managers, and employees a “Speak-Up Card” with an overview of the newly appointed corporate officers, as well as provide system and contact details. e-learning programs for all employees. In addition to these regular activities, we hold seminars and training sessions on Structure of the Speak-Up System an ongoing basis as required.

Chief Compliance Officer (CCO) Anti-bribery/corruption initiatives Based on the principle of “Giving First Priority to Compliance,” Point of contact the Group implements strict measures to prevent all forms of corruption. Specifically, we have established the Rules for External Internal Outside Audit & Supervisory Compliance Prevention of Bribery of Public Officials, which regulates the lawyer Board Members Committee Secretariat provision of entertainment, gifts, invitations, and donations to domestic and foreign public officials as well as the selection of agents. In addition, taking into account revisions to the Subsidiaries laws and regulations of each country, and advice from various Compliance Committee external specialists, we continuously review our internal rules Outside lawyer and guidelines. Further, we extend these rules and guidelines Officers/Employees Officers/Employees of of Subsidiaries to overseas offices and Group companies, and we also offer Sumitomo Corporation ongoing employee education and work constantly to prevent Report Speak-Up bribery and corruption. In 2017, we announced the Sumitomo Corporation Group Initiatives to ensure compliance Anti-Corruption Policy, which summarizes the Group’s Appropriate responses to compliance violations and principles and policies in this regard. This Policy includes the preventive measures following statement. “The Sumitomo Corporation Group will In case of a compliance problem, the Company, primarily not commit bribery or conduct any activity raising the through the Legal Dept. and Legal Compliance Dept., promptly suspicion of bribing Japanese government or other public takes steps to establish the facts and clarify the causes of the officials; and will as a principle prohibit its officers and incident, including the appointment of external specialists employees from providing such officials with entertainment, when necessary. Based on the outcome, we take corrective gifts, or the equivalent. It will not make any offer, payment, measures, disciplinary action, and preventive measures. promise to pay, or authorize the payment of any money or The Compliance Committee Secretariat keeps records of anything of value to any foreign government or other public the details and number of cases occurring in the Group, and official, for the purpose of influencing any act or decision of other information such as measures taken to prevent such official in order to assist it in obtaining or retaining recurrence. These are evaluated and used to plan future business.” This statement declares the Group’s principles in compliance measures. The results are deliberated at meetings relation to preventing bribery. Furthermore, through this Policy of the Compliance Committee, and reports are made we explain our anti-bribery system and our initiatives for the periodically to the Management Council and the Board of prevention of bribery to our business partners, and request Directors. Through this process of repeatedly improving and their understanding and cooperation. enhancing such measures, we strive to further encourage thorough compliance throughout the Group.

104 Chapter 4 Management Base Enhancement Internal Control

Risk Management Basic policy and framework Quantifiable risk and Non-quantifiable risk and have We define “risk” as “the possibility of losses due to the frameworks appropriate for each type of risk. occurrence of anticipated or unanticipated situations,” and We have created an effective risk management also as “the possibility of not achieving the expected return framework that anticipates changes in the external on business activities.” We have set the following three items environment by studying advanced methods and processes. as the goals of our risk management activities. Our goal is to implement the best practice in risk management while maintaining the flexibility to adapt to changes in the business environment. The business 1. Stabilize Performance environment is continually changing, and new business 2. Strengthen Financial Base models that we could never have imagined are emerging on a 3. Maintain Corporate Reputation daily basis. In order to respond to such situations in a timely and effective manner, our risk management has continued to In addition, we classify our risks into two categories: evolve under the leadership of top management.

Definition of Risk • The possibility of losses due to the occurrence of anticipated or unanticipated situations • The possibility of not achieving the expected return on business activities

Goals of Our Risk Management

Stabilize Performance Strengthen Financial Base Maintain Corporate Reputation Minimize discrepancies between Maintain Risk-adjusted Fulfill CSR requirements the plan and actual results and Assets within the buffer and preserve secure stable profits (shareholders’ equity) corporate reputation

Quantifiable Risk = Value Creating Risk Investment Committee Maintain Risk-adjusted Assets within our buffer / Maximize Risk-adjusted Return Deliberate and monitor important projects through Business Unit Investment Committee and Company Investment Committee

Investment Risks Credit Risks Market Risks • Integrated management framework covering entire • Management based on internal • Loss limit monitoring phases from the entry to the exit process. credit rating model • Separation and control of • Hurdle rate and decision-making procedures at • Periodic credit limit revisions front, middle, and back examination and execution stages and measures to secure office duties • Managing business and monitoring receivables • Selection of withdrawal targets

Concentration Risks • Controlling exposure to each country and region based on country risk management system • Portfolio management / Risk-adjusted Assets of each business line • Controlling exposure to mineral resources and energy upstream projects

Non-Quantifiable Risk = Value Breaking Risk Risk control by avoiding or minimizing risks Companywide internal control reinforcement initiatives centered on the Internal Control Committee

Legal risks Fraud or illegal acts by officers or employees Internal Control Committee IT system management risks

105 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Risk Management System for Investments Decision-making process for investments Execution support and monitoring of investments Once an investment has been made the decision to withdraw With regard to post-investment execution support, issues are becomes difficult, and in the event of withdrawal, losses tend clarified before the decision to invest is made, and a system to be larger. Therefore, we have adopted a unified framework has been established to work on resolving smoothly any that covers everything from the entry into the investment to issues that emerge after the investment has been made. For the exit and that takes into account changes in the portfolio as especially important projects, in addition to the “100-day a whole, as well as the nature of the risks involved in each plan*1” execution support system, which provides integrated individual investment opportunity, while reviewing the support functions, a “Focused Follow Up” system has been process for assessing and following up investment projects established that consists of plans to improve performance, as appropriate. and following up of project execution, provided by the When assessing investment projects, the investment Company Investment Committee. theme is clarified at the initial stage of the process, and is In fiscal 2018, we introduced a new “full potential plan” verified as a key point of due diligence. In addition, by investment monitoring system that is intended to improve the applying a discount rate appropriate to each business risk, we quality of the investment portfolio. Investment targets are are able to calculate an “appropriate price” for the investment, evaluated mainly using quantitative indicators, and categorized and evaluate the opportunity from both quantitative and into “Satisfactory,” “Not Satisfactory,” and “Not Good.” qualitative aspects. After confirming the positioning within the investment With regard to the decision-making process for portfolio, a further strengths and weaknesses review of investments, the Business Unit Investment Committee or the business potential is performed. Depending on the outcome Company Investment Committee meets at each stage of of the review, specific measures may be taken to maximize consideration and implementation, depending on the scale the value of the business in accordance with the growth and importance of the project. strategy of “Increase Value of Existing Business,” but From an early stage, these committees conduct in-depth withdrawal will be encouraged for businesses with limited discussions regarding the strategic positioning of the project, room for growth. the background to and the reasoning behind the selection of *1 Activities, performed mainly in the first 100 days immediately after the the project, and the various factors that may affect the investment has been executed, to construct and develop management success of the investment. infrastructure aimed at drawing up a medium-term plan that seeks to maximize business value, including management of the investment, and which management and financial indicators should be used as targets

Investment Risk Management Framework (Decision-making Process for Investments / Investment Evaluation Method & Execution and Management Systems)

Phase I: Consideration of project – Execution of investment Phase II: Post-investment follow-up

Post- Decision-making Business Drafting and implementation Consideration of project investment 1 2 and execution 3 follow-up 4 management 5 of full potential plan

Deliberation by consideration Deliberation by execution Drawing up, execution, and Monitoring of investment targets stage committee stage committee regular review of the 100-day plan and support for execution • Confirmation of consistency • Confirmation of adequateness of • Development of management • Identification and evaluation of with strategy stand-alone value, synergies, infrastructure including management status based on • Clarification of investment theme and full value governance system quantitative criteria • Confirmation of level of return • Analysis of downside scenarios • Setting and monitoring of • Investments judged to have further • Discussion of countermeasures to optimal KPIs potential: draft and execute concrete • Discussion of significant risks strategy to maximize business value and countermeasures deal with significant risks • Drawing up of revised medium-term plan of investment targets; Investments • Formulation of proposals for with limited growth potential: move governance/monitoring system toward withdrawal.

Management system Management system

• Stage-by-stage multi-aspect scrutiny of major projects • Introduction of Focused Follow-up System • 2-stage scrutiny: Initial consideration and execution stages • Monitoring of major projects • Scrutiny by Business Unit Investment Committee and Company Investment Committee • Setting of 100-day plan execution support system • Setting of quantitative criteria for investment entry • Introduction of full potential plan investment monitoring system

Business Unit Investment Committee/Company Investment Committee

106 Chapter 4 Management Base Enhancement Internal Control

Financial Reporting The Sumitomo Corporation Group creates financial reports in For its financial reporting internal control system, the accordance with the Accounting Policy Manual that lays out Company acts in accordance with the Internal Control Reporting the Group’s internal policies for accounting, and discloses System stipulated in the Financial Instruments and Exchange information in a timely and appropriate manner and in Act, by promoting internal control activities as required by the compliance with relevant laws, regulations, and accounting Act, and evaluating and improving its business processes. standards.

Information Security Basic policy and system information, in addition to establishing a Privacy Policy to The Company acknowledges the importance of ensuring protect this as appropriate, we have put in place relevant rules information security, and maintains appropriate measures and organizational structures. including, but not limited to, the establishment and We also work on initiatives to minimize risk related to maintenance of relevant rules, primarily through the unexpected situations involving information security, such as Information Security Committee, which is chaired by the Chief external attacks aimed at theft or destruction of corporate Information Officer (CIO). In October 2017, a new Information information. As well as using system-based safeguards, Security Policy was established. we conduct ongoing training and drills for employees while The information managers in each organization categorize establishing and monitoring systems at major subsidiaries information assets based on their importance, give and other Group entities. The Company also coordinates with instructions for procedures and methods in order to handle specialized third-party organizations to stay up-to-date on these assets adequately, and work to ensure information relevant information and to enable swift and appropriate security, efficient information-related administrative responses. procedures, and information sharing. For personal

Information Management System

Information Security Committee President and CEO Information security-related initiatives • Planning, drafting, and implementation Chief Information Officer (CIO) of measures (Chief Strategy Officer) • Researching and responding to information leaks, etc.

Chairperson: CIO Vice chairperson: CAO Corporate Group Business Units Domestic Offices Overseas Offices Members: Assistant CAO (General Affairs & Information Managers Legal), General Managers of Corporate Planning & Coordination • Responsible for overseeing information management for their organization Dept., IT Governance & • Tasked with swift response measures in the event of an occurrence (or the threat of Administration Dept., Corporate an occurrence) of unpredicted information security incidents Legal & General Affairs Dept., Legal Compliance Dept., Human Resources Dept., Digital Business Division, Digital Solution Business Dept., and Information Technologies Report incidents regarding confidential information leaks, etc., Planning & Promotion Dept. and respond to those incidents Secretariat: IT Governance & Administration Dept.

107 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Internal Audits The Internal Auditing Department, which reports directly to asset & risk management, compliance and business the President and CEO, is an independent organization that operations. Also, by comprehensively examining and monitors the operations of the entire Sumitomo Corporation identifying the risks inherent in the organization being audited, Group, and audits all organizations and operating companies it provides suitable recommendations based on an evaluation of the Group. As well as reporting the outcome of all internal of the effectiveness and adequacy of the internal controls audits directly to the President and CEO, periodic reports of the organization, thus expedites improvement and are also made to the Board of Directors. The Department maintenance on auditees’ own initiative. conducts audits on all aspects of internal control, comprising

Audit & Supervisory Board Members Board of Directors

• Periodically reports the results of audits

Internal Auditing Department

• Covers all aspects of internal control, comprising asset & risk management, compliance and business operations President and CEO • Reports the internal • Comprehensively examines and identifies • Directly reports on the audit plans and inherent risks status of the audits being audit results • Evaluates the effectiveness and adequacy of carried out in addition to internal controls all the internal audit reports

• Conducts internal audits / Provides suitable recommendations, expedites the improvement and maintenance on auditees’ own initiative

All Sumitomo Corporation Group Organizations and Operating Companies

Group Governance Project to enhance Group governance basic risks that should be controlled as part of the operation “Medium-Term Management Plan 2020” includes initiatives of the business. With regard to the significance of the risks to enhance governance further as part of its drive to reinforce and their countermeasures, while maintaining dialogues with management bases. The Company considers the internal Group companies, the Company will create an autonomous control system to be the foundation for promoting growth cycle of PDCA for the improvement of internal control. The strategies, and in terms of specific measures to enhance Group will standardize this process, and actively promote the governance it has begun working on a project that aims to use of PDCA cycles in workplaces to open the way to enhance corporate value and operational quality through the enhance operational quality for the Group as a whole. use of the internal control system. This project will identify the

108 Chapter 4 Management Base Enhancement Human Resources Management

Human Resources Management

For the Sumitomo Corporation Group, human resources are one of its most valuable management resources. By understanding and applying our Management Principles and Activity Guidelines, our human resources from diverse backgrounds continue to create new value in the medium to long term and make wide-ranging contributions to society. Here, we present the human resources management measures that we are implementing under “Medium-Term Management Plan 2020” to promote the basic concept of our human resources strategy, “Diversity & Inclusion: Making diverse strengths a source of competitiveness.”

Strategic Human Resources Management on a Global Basis Strategic allocation of human resources Main measures for the optimization of We will undertake strategic allocation of human resources to global human resources operations the three emerging fields (Technology × Innovation, healthcare, and social infrastructure) identified in “Medium- Create a global human resources database Term Management Plan 2020” and to the companywide To visualize what kind of human resources we have and where, we business development regions. In specific terms, we will will build a Group human resources database including overseas reach a management-level consensus through discussion at human resources. the Talent Management Meeting before carrying out human Enhance succession planning resources allocation in line with business strategies. In the succession plan for major positions on a global basis, which we are currently formulating, candidates will be selected not only Active use of interdivisional job rotation for the next generation but also for the generations to come, As one measure to improve both the quality and quantity of including overseas human resources. This will promote plan-driven allocation and development of human resources. executive management candidates, we will actively implement a system of job rotation that transcends divisional Introduce the Global Grading System considerations. To compare what level of human resources are present across the Our aim is to develop human resources as executive Group, we will consider introducing a common Groupwide management candidates who have collected diverse personnel grading system. experiences in environments different from the conventional pathway. Introduce the Global Mobility Policy To support the development and utilization overseas human resources across organizational and regional boundaries, we will Building of the systems required for global human introduce common Groupwide rules on employment conditions and resources operations welfare packages to be applied in the case of transfer between We will implement the measures listed below with the aim of overseas bases. ensuring that we have the right person in the right place at the right time on a global basis.

Growing as an Organization Unceasingly Challenging for New Value Creation We will actively implement measures to support the spirit of Introduction of the Medium-Term Management Plan challenge, which is one of the themes of “Medium-Term Challenge and Evaluation System Management Plan 2020.” As a program to promote the comprehensive engagement of all employees with “Medium-Term Management Plan 2020,” Diversity & Inclusion as an employee evaluation criteria we have introduced the Medium-Term Management Plan Diversity & Inclusion, the foundation for creating new value, Challenge and Evaluation System. This system encourages has been added to the criteria for individual employee employees to engage in renewed discussion as to what their evaluation. Whether the individual respects and has accepted particular organization needs to do in order to realize the diverse values and approaches has thus been recognized as plan’s growth strategies and to reflect this in ambitious an important indicator of capability. individual goals.

(1) Set organizational (2) Set ambitious (3) Reflect the difficulty, goals for the individual goals as a degree of implementation of step toward meeting achievement, and “Medium-Term the organizational other aspects of the Management Plan goals individual goals in 2020” employee evaluation

109 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Creating an Environment in Which Diverse Individuals Can Develop Their Capabilities to the Fullest Human resources who can create new businesses while Enhanced utilization of professional human resources building relationships of trust with stakeholders are an and actively pursuing recruitment of mid-career important Group asset. For Group development going forward, human resources we are working to create an environment in which a diverse To remain successful in a changing world, companies need range of individuals can display their capabilities to the fullest. the input of human resources with diverse strengths. At Sumitomo Corporation, we are therefore introducing a new Promotion of health and productivity management grading system which is designed to offer highly motivating For all Group employees to perform at their highest level and opportunities to professional human resources, that is human to continue to create new value, it is crucial that each resources with a high level of specialist expertise making employee maintain good health. In connection, Sumitomo strong contributions to their organization. Meanwhile, by Corporation has set three main pillars for health and relaxing some of the requirements for mid-career human productivity management and is implementing a range of resources recruitment and applying them more flexibly, we measures around them: “Improvement of health literacy,” will promote recruitment of external professional human which will enable employees to continue to work resources, leading to enhanced competitiveness. energetically, “Reassurance in emergencies,” which provides reassurance that employees will be taken care of when they Enhancement of human resources development measures fall ill, and “Global medical support,” which is unique to Through the Sumisho Business College (SBC), we offer a total integrated trading companies. of 320 off-the-job training programs annually to all Group employees, including overseas human resources, on courses 1. Improvement of health literacy covering work-related knowledge and skills. In fiscal 2017, we established the SC MBA, a program for the development of managerial human resources, with a wide selection of Sumitomo Corporation: A company where all employees work with energy, excitement, and good courses that are updated with the latest information. health, and take on challenges to create new value Not only are most of the training programs open to all Group employees, but there are also many dedicated programs for each Group company. In fiscal 2017, a program in 2. Reassurance in emergencies 3. Global medical support managerial human resources development was introduced for Group company employees, one of our initiatives to Creating a work environment to realize self-sustaining support strategic human resources management across the and flexible workstyles Sumitomo Corporation Group. At the Sumitomo Corporation Group, we seek to realize Main human resources development measures output-oriented workstyles that help generate high added implemented since fiscal 2017 value. This means, for example, creating environments that encourage self-sustaining and flexible work that is free of Strengthening of managerial human resources development conventional restrictions in terms of place, time, and style of • Establishment of SC MBA work. It also means promoting mental and physical well-being • Establishment of strategic professional college and allocating time for personal development. In fall 2018, a Strengthening of human resources development in line teleworking system and a “super-flexible” work hours system with “Medium-Term Management Plan 2020” will be introduced for employees in Japan. The teleworking • Introduction of training programs in DX system envisages three work formats: home working, mobile • Holding of Diversity & Inclusion seminars working, and satellite office working. A maximum teleworking time limit corresponding to two working days per week will SBC offers a total of 320 training Leadership Professionalism apply Companywide. The super-flexible system, meanwhile, programs annually, with an does away with core time, allowing a more independent and approach focused on three perspectives: Corporate Mission adaptable workstyle within the flexible worktime system. The Programs for Statement / SC VALUES; different Leadership; and Professionalism. employee classes Optional programs introduction of the two systems will help to maximize the Long-term A rich variety of courses has Vision programs Trading administration / performance of individual employees. Teamwork Accounts / been developed, ranging from the Human resources Legal affairs / development Risk management / knowledge and interpersonal skills Innovative approach Cognitive abilities, etc. essential for a trading professional etc. to cutting-edge applied programs at the MBA level, reflecting the latest Corpo LUES global trends. rate Mission Statement / SC VA

• Please visit the website below for detailed information on human resources recruitment and development, as well as examples of how the human resources system is used to offer professional opportunities to employees. www.sumitomocorp.com/en/jp/about/talent 110 Chapter 4 Management Base Enhancement Sustainability Management

Sustainability Management

Our View on Sustainability The Sumitomo Corporation Group aims to achieve sustainable we will heighten our awareness of and efforts to address growth with society by consistently addressing social issues social issues through our business activities. As well as sincerely through its business activities. Operating meeting our corporate social responsibilities, including businesses in a wide range of fields globally gives us environmental preservation, respect for human rights, and innumerable points of contact with society. At each of these, compliance, we work on social contribution activities.

Structure for Promoting Sustainability Corporate sustainability in the Sumitomo Corporation Group process, we take into consideration the social and is promoted through a process of coordination between the environmental issues and the needs of our wide range Corporate Sustainability Department, which undertakes the of stakeholders. planning of measures to promote sustainability, the The Corporate Sustainability Committee acts as an sustainability managers and staff of each Business Unit’s advisory body to the Management Council and discusses Planning & Coordination Department, and the sustainability important policies, measures, and initiatives relating to the staff of domestic and overseas regional organizations. In this promotion of sustainability.

Corporate Sustainability System

Management Council Board of Directors

Report Report

Corporate Sustainability Committee

General Manager of Each of the Following Corporate Planning & Coordination Dept. Global Coordination Dept. Departments: Internal Auditing Dept.

Investor Relations Dept. Corporate Communications Dept. Corporate Sustainability Dept.

IT Governance & Administration Dept. Human Resources Dept. Corporate Legal & General Affairs Dept.

Legal Dept. General Accounting Dept. Risk Management Dept. No.1

Planning & Coordination Dept., Planning & Coordination Dept., Transportation Planning & Coordination Dept., Metal Products Business Unit & Construction Systems Business Unit Infrastructure Business Unit

Planning & Coordination Dept., Planning & Coordination Dept., Planning & Coordination Dept., Mineral Resources, Media & Digital Business Unit Living Related & Real Estate Business Unit Energy, Chemical & Electronics Business Unit

Sustainability Promotion Initiatives The Sumitomo Corporation Group places great importance on supply chain by holding seminars with the participation of human rights and environmental issues across all of its outside experts. As for the environment, we build and operate business activities, including its supply chain. In the area of environmental management systems compliant with the ISO human rights issues, in each year since fiscal 2015, we have 14001 international standard. As part of this, we offer published a statement, inspired by the United Kingdom’s e-learning environmental courses and take other measures to Modern Slavery Act 2015, outlining our policies against raise employee awareness. modern slavery and human trafficking. In fiscal 2017, we In January 2018, to promote action on social issues organized related e-learning courses and, for the second through our business activities we held seminars on the consecutive year, drew attention to human rights in the SDGs with the participation of outside experts.

111 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Dialogue with stakeholders In October 2017, we organized a meeting for the exchange of non-financial information, and a governance system to deal opinions on ESG-related initiatives. Meeting with ESG with ESG-related risk. investors and analysts, we discussed the relationship Going forward, utilizing dialogues with stakeholders, we between social issues and our business activities, concepts will strive to enhance our initiatives for addressing social for a medium- to long-term growth strategy incorporating issues and to raise the level of ESG data disclosure.

Sumitomo Corporation Group’s Material Issues In April 2017, we identified six material issues for the Sumitomo Corporation Group that illustrate the relationship between our business activities and society.

Six Material Issues to Achieve Sustainable Growth with Society

Achieving Harmony with the Global Environment Contributing to the Development of Local Communities and Industries

Developing Human Resources and Promoting Diversity

Sumitomo Corporation

Enhancing Governance

Establishing a Foundation for Providing Diverse “Accessibility” Comfortable and Enriching Lifestyles

For details on each of the material issues, please see Page 13 “Corporate Mission Statement and Material Issues.”

Identification Process With reference to the SDGs and international guidelines, each business unit first gathered information on and analyzed its relationship with social issues. The next step was to select social issues that we regard as important and that need to be addressed as priorities in light of Sumitomo’s Business Philosophy and the Sumitomo Corporation Group’s Corporate Mission Statement. After surveys covering all officers and employees and exchange of opinions with outside experts, the selected social issues were outlined. The selected issues and their importance were then reviewed by the CSR Committee (now the Corporate Sustainability Committee). The material issues were finalized following deliberation and approval by the Management Council and the Board of Directors. Sustainable Development Goals (SDGs): A set of social issues for resolution By addressing the material issues identified in the above by the year 2030 adopted by the United Nations General Assembly in 2015. process through our business activities, we believe that the Sumitomo Corporation Group will contribute to realization of the SDGs.

112 Chapter 4 Management Base Enhancement Sustainability Management

Approach to Material Issues and Related Initiatives The Sumitomo Corporation Group aims to achieve sustainable growth by placing material issues at the foundation of its management strategy and individual business initiatives, which will strengthen its contribution to the realization of a sustainable society. In delivering the value required by society through our businesses, we will consider the long-term trends in a range of social issues, and we will conduct our business activities with a heightened awareness of their impact on society and the environment.

Initiatives Our telecom service in Myanmar delivers service with Japanese quality standards, contributing to the rapid spread of mobile phone use in the country. Through this business, we are creating telecom networks offering various forms of access. We will focus on Establishing a Foundation for Comfortable and Enriching Lifestyles through mobile phones and Providing Diverse “Accessibility,” which is essential for future value creation. Moreover, through employment creation and ripple effects on peripheral businesses such as electronic payment services, we want to realize the goal of Contributing to the Development of Local Communities and Industries. Our overriding goal is to achieve truly sustainable growth with Myanmar.

Initiatives to address climate change issues As part of its initiatives to contribute to society and the power generation asset portfolio to gas and renewable energy environment through its business activities, the Sumitomo over medium- to long-term, with the aim of reducing the Corporation Group has a companywide policy for initiatives on share of coal from 50% to 30% and increasing the share of climate change issues as well as policies at the individual renewable energy from 20% to 30% by around 2035 (both business level. figures based on generation capacity). In the upstream The basic policy for Group business activities is that we resources business, meanwhile, we are looking to build an understand climate change as an important social issue and upstream resources portfolio that will contribute to stable contribute to its resolution through business activities. By energy supply based on long-term demand projections. In simultaneously tackling the two issues of controlling other fields, we will strengthen initiatives on new greenhouse gas emissions and ensuring a stable energy technologies and business models in areas such as energy supply, we will work to achieve sustainable growth with society. management, the storage battery business and hydrogen- At the individual business level, taking as an example the related business as a way of contributing to the resolution of power generation business, we will shift emphasis in the social issues.

Social Contribution Activities The Sumitomo Corporation Group fulfills its Management Principles and Activity Guidelines as a global business group by working to resolve social issues through its business activities and its social contribution activities with the aim of building a sustainable society.

The Sumitomo Corporation Group’s Basic Principles on Social Contribution Activities

OBJECTIVE ACTIVITIES APPROACH We, as a global organization, will work on We will engage in social contribution We will perform and seek to continuously social issues through our business activities aimed at developing the next improve our activities with modesty and activities and social contribution activities generation of human resources who will high aspirations and endeavor to with the aim of building a sustainable drive the sustainable development of maintain a high level of transparency society by implementing the Sumitomo society, and contributing to local while strengthening our relationships Corporation Group’s Management communities in areas we do business all with all our stakeholders. Principles and Activity Guidelines. over the world. We will also take part in various activities as a good corporate citizen.

113 Sumitomo Corporation, an Vision and Strategy Business Overview Management Base Integrated Trading Company Enhancement

Activity report

Developing the Next Generation of Human Resources

The TOMODACHI Sumitomo Corporation Scholarship Program (since 2014) Sumitomo Corporation participates in the TOMODACHI Initiative, a program of exchange between Japan and the United States led by the U.S. Embassy in Tokyo and the U.S.-Japan Council (Japan). We organize a scholarship program for university students that are sent to the United States as exchange students. We provide not only financial support but also training opportunities at Sumitomo Corporation of Americas. Program participants have access to experiences not available on campus during an overseas study break.

The Sumitomo Corporation Scholarship (since 1996) We set up the Sumitomo Corporation Scholarship in 1996 as part of our 50th anniversary in the trading business. Since then, scholarships have been provided to university students in Asian countries including Indonesia, Myanmar, and Pakistan. In this way, we support the development in emerging Asian countries of human resources to build the nation’s future. Up to fiscal 2016, the 20th anniversary of its foundation, the number of students who had received the scholarship totaled roughly 16,000.

Contributing to Local Communities in Areas We Do Business

Supporting the “Sankyu Thank You Project” (since 2013) We support the “Sankyu Thank You Project” operated by the Japanese Red Cross Society to protect infant’s lives in southern and eastern Africa. The concept of the project is to protect the lives of as many African mother/infant pairs as the number of babies born to our employees on maternal or childcare leave. Sumitomo Corporation has participated since 2013 through donations and visits to the supported regions.

Activities to Introduce Japanese Culture (since 2015) With the aim of building good relations with local communities at overseas business bases, we give presentations of traditional Japanese culture. Activities took place in Myanmar in fiscal 2015, in Ghana and Iran in fiscal 2016, and in Mexico and Cuba in fiscal 2017. Our employees visit the locality and give demonstrations of kimono wearing, calligraphy, flower arrangement, and other traditional arts. They also organize hands-on workshops in which they deepen contact with the numerous participants.

Assisting Reconstruction after the Great East Japan Earthquake

Sumitomo Corporation Follow-up Program for the Revitalization of East Japan (since 2017) In the hope of aiding in the recovery of the areas hit by the Great East Japan Earthquake and the rebuilding of victims’ lives, we provided support to young people involved in revitalization projects in eastern Japan for five years from fiscal 2012. However, numerous problems remain. Conditions in the disaster-hit regions and people’s situations are constantly changing along with their support needs. To provide ongoing reconstruction support that is closely tailored to local needs, we have revised the program to give more emphasis to in-depth dialogue with grant recipients, drawing at the same time on our past support experience.

• We present our social contribution activities from around the world here: www.sumitomocorp.com/en/jp/sustainability/contribution

114